Finances in Football: China cracking down

It’s been no secret that the government of the People’s Republic of China have targeted companies in an attempt to scale back their investment activities abroad. News has broken in the last day that this has now been somewhat clarified, with investment in sports clubs including football in the “restricted” category.

Reports from Bloomberg and the South China Morning Post yesterday both confirmed that China has clarified what investments it wants to promote and which it wants to scale back.

China have already pressured four of it’s biggest dealmaking companies – including Fosun International, who own Wolves – into scaling back investment. This codification has turned that pressure from de facto policy into legal restraint – which has implications for Blues.

What does this restriction on investment mean?

From my understanding, the Government of China wants to restrict where Chinese money is invested.

Reuters confirms that China have tightened outbound capital controls. This is nothing new – the junket business in Macau was created solely to enable high-rolling Chinese businessmen to take Yuan out of China to gamble in the VIP rooms of the casinos of the former Portuguese colony.

“China wants its money to focus on specific sectors that can help boost long-term growth potential,

“The new policy also tries to close the loophole of suspicious capital outflows and possible money laundering.”

This is where I think this ruling has serious implications for football.

For example, while Wolves are already owned by Fosun I would expect China to restrict how much money Fosun funnels out of China into Wolves, as football is in “restricted” category.

The upshot of that would be that I think that Wolves may be restricted on receiving further funding from Fosun to buy and pay players, forcing them into spending only what they can make themselves from transfers and football operations.

How does this affect Blues?

At the moment, Blues should be safe.

From a legal standpoint, Birmingham City is owned via its UK parent Birmingham City PLC by Birmingham Sports Holdings, a Cayman Island company which is listed on the main board of the stock exchange. The majority shareholder of BSH is currently Trillion Trophy Asia, a British Virgin Islands company owned HK/Chinese share magnate Paul Suen Cho Hung.

Hong Kong is a Special Administrative Region (SAR) of China, ruled under the “One Country, Two Systems” principle which is supposed to ensure the Basic Law of Hong Kong remains in force until 50 years after the handover (2047).

My understanding is that as BSH isn’t a Chinese company, and isn’t owned by a Chinese business these rules shouldn’t affect us.

However…

I’ve long held that while TTA are the nominal owners of Blues, there is a new owner in the pipeline represented by the club’s de facto CEO, Ren Xuandong.

While details of this new owner are pretty non-existent right now I am also given to understand that Ren is working for someone from mainland China – ie someone who could very possibly be affected by this crackdown.

Is this something Blues fans should be concerned about?

Right here and now, probably not. I think the need for new players and the struggles the club have had in signing them is probably the most pressing thing.

However… down the line I think it is something we have to be cautious about. I saw this tweet by Professor Simon Chadwick, who is Professor of Sports Enterprise, Manchester & Co-Director of China Soccer Observatory.

Chinese state is not Sheikh Mansour nor Roman Abramovich nor the Glazer family. It can AND WILL(!!!) exercise control over its investors.